Explore BrainMass

Small Business Growth and Development

Using the steps in Clement Ojugo's article, "Knowing your break-even point critical to good decision making," solve the following:

You are opening a new retail shop and estimated fixed costs for the vacant facility are $7,500 per month. Estimate that items will sell for approximately $30 each, the combined variable cost of product and labor are estimated at $10 with a selling price of $30. You feel certain that the market for this new retail shop is 100 transactions per day. Determine if you should open the retail shop in this vacant space. Include the break-even transactions, CM%, and the break-even dollar amount. Explain your answer (include rationale if your answer is yes or no).

Solution Preview

First off, the contribution margin percentage (CM%) would be calculated by dividing margin per unit by sales per unit. If each unit's variable cost is $10, and each unit's sales price is $30, then contribution margin is $30-$10= $20. Contribution margin percentage is $20/$30= 66.7%.

We calculated above that the contribution margin per unit is $20. The contribution margin per unit sold is the amount of money that can be used to pay fixed costs. We know that fixed costs are ...

Solution Summary

The small business growth and development are examined.